Adani Ports has acquired an interest in Dhamra Port, situated between the major ports of Haldia and Paradip. Its deep-water container terminal, if developed, will be a major threat to nearby Kolkata and Vishakhapatnam.
Adani Ports and Special Economic Zone recently announced the much-anticipated acquisition of Dhamra
Port Company
Limited (DPCL), a joint and equal ownership by Larsen and Toubro and
Tata Steel. DPCL is a concessionaire at Dhamra Port (in the state of
Odisha on the east coast of India) and has been entrusted with the
responsibility of building and operating a multi-user, multi-cargo port.
DPCL holds a 34-year concession which can be renewed for two additional
10-year periods. The 100% stake was acquired by Adani Ports for an
enterprise value of INR 55bn ($928 million), which implies an EV/EBITDA
multiple of 14.1x for FY14 EBITDA of INR 3.91bn ($66 million). DPCL had
INR 34bn ($574m) of debt on its books for the year ending March 2014.
Adani Port reportedly had been awaiting environmental clearances
(received early this year) for Phase 2 expansion at the port and has
also been serving as management consultants to the port. Dhamra Port
handled 14.3 million tonnes of bulk cargo in the year ending March 2014,
~70% of which included coal imports.
Phase 2 of the Dhamra Port
project is targeting an additional capacity of 75 mtpa over the current
capacity of 25 mtpa. Presently the port has one berth of 12 mtpa import
handling capacity and one berth of 13 mtpa export/coastal movement
capacity. From the current two berths, the port could expand to 15
berths after the completion of Phase 2. In its press release on the
acquisition, Adani Ports mentioned that second phase development will be
initiated within 90 days, with a completion targeted of 30 months.
However our understanding suggests that not all capacity/berths will
come on stream by end of the targeted 30 months; capacity will be added
as and when required.
Table 1
Proposed Ultimate Handling Capabilities at Dhamra Port
Source: Dhamra port, DMER
Figure 1
Volumes Handled at Dhamra Port in the Past (m tonnes)
Source: Dhamra port, DMER
We
believe that the acquisition of Dhamra Port brings many benefits for
Adani Ports, such as: 1) Dhamra Port gives Adani a scalable 100 mtpa
facility on the east coast of India, which, along with 101m tonnes
handled at Mundra in FY14, will further strengthen its existing position
in the Indian port sector; 2) Dhamra Port has sea-side infrastructure
and rail connectivity already in place along with the environment
clearance for the second phase, however it needs to improve road
connectivity; 3) The port can handle capesize vessels; 4) The
acquisition could enable Adani Enterprises to route greater amount of
coal imports for SAIL to Dhamra Port from their current discharge at
competing ports once the required capacity at Dhamra Port is in place;
5) Last, but perhaps the most important, is the ports’ proximity to the
mineral belt of Jharkhand, Orissa and Chhattisgarh, along with proximity
to end consumers. The port saw increased loaded volumes of 4.08m tonnes
in FY14 compared with 2.35m tonnes in FY13, possibly suggesting
increased coastal movement.
In terms of container handling
facilities, the proposed development pipeline has a provision for two
container berths. It is worth noting that, in the past, APM Terminals
was reportedly interested in taking a stake in Dhamra Port to develop a
500 thousand teu (which could be expanded) container facility. Figure 2
highlights the market share of upper east coast ports in total container
volumes handled at Indian ports. Figure 3 highlights the container
volumes handled by Kolkata and Vishakhapatnam ports which would be the
key competitors to any container facility developments at Dhamra. In
addition a new multipurpose facility is under plans at Paradip, which
can add to the competition.
Figure 2
Container Handling Market Share of East Coast Ports in India, FY13
Source: DMER
Figure 3
Container Handling by Competing Ports (’000 teu)
Source: DMER
It
is worth noting that Adani Ports’ east coast entry actually happened
late last year when the company announced that it had completed the
construction of the steam coal import terminal at the Vishakhapatnam
port, eight months ahead of schedule. The company had entered a
concession agreement with Vishakhapatnam Port Trust (VPT) in March 2011
to redevelop and operate the facility. According to the company, the
redeveloped terminal can handle ~6.5m tonnes, and it is expected to
handle ~3m tonnes in FY15. The company’s existing port assets (prior to
Vizag and Dhamra), which include Mundra Port, Hazira and Dahej, were all
located on the west coast of India.
Adani Port’s stock has surged
~45% since at the beginning of the year. The strong performance has
partly resulted from the recent bull run in the Indian markets along
with positive news flow from the company. In March, the company
announced that it had met the targeted handling of more than 100m tonnes
of cargo in FY14, while in mid-May it announced the acquisition of
Dhamra Port. We like Adani Ports for its strong presence on the west
coast of India, diversified cargo base and incremental SEZ contribution.
Our View
Adani Ports benefits from acquiring a scalable facility on the east
coast of India, with commodities and consumers in the proximity. Dhamra
Port however needs to improve on its hinterland connectivity.
Source: Drewry Maritime Research (www.drewry.co.uk/ciw)